Dollar loses gains on jobs data; Greece in focus

Japanese officials the big beneficiary of strong U.S. jobs data

DeborahLevine

NEW YORK (MarketWatch) — The dollar reversed gains against the euro on Friday that followed a U.S. government report showing the economy added far more jobs last month than economists anticipated.

Continued uncertainty about events in Europe, especially potential news regarding Greece’s debt over the weekend, made traders reduce bets on a big move in the euro, analysts said.

The euro
EURUSD, -0.7253%
fell as low as $1.3064, before recovering to $1.3147, from $1.3138 in late North American trade Thursday.

The ICE dollar index
DXY, +0.52%
which measures the performance of the greenback against a basket of six currencies, rose as high as 79.357, then settled back to 78.969, from 79.010 Thursday.

ECB, Bank of England meetings next week

(1:52)

The European Central Bank is likely to keep monetary policy on hold next week, while the Bank of England may decide to expand its asset-purchase program in an effort to revive the British economy.

The dollar initially weakened after the Labor Department said the U.S. economy added 243,000 jobs in January, and the unemployment rate unexpectedly declined to 8.3%. A MarketWatch survey of economists projected that the economy added 121,000 jobs in January and the unemployment rate remained at 8.5%. Read story on payrolls.

But pressuring the euro, European finance ministers canceled a meeting that had been tentatively set for Monday, which was due to focus on Greece’s second bailout. Greece’s talks with international creditors are proving “very difficult,” Greek Finance Minister Evangelos Venizelos said, according to Dow Jones Newswires. See more on postponed meeting, Greece.

“News that there will not be an agreement on Greece before the weekend, meaning that the European ministers meeting initially planned for Monday will be postponed, also weighed on the euro,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

Positions against the euro are also playing a key role in the currency’s moves, said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.

The record number of short positions -- betting against the euro – has come down from the record highs several weeks ago, but now “it’s a matter of waiting for the euro to recover,” he said. “People are not going long the euro, just cutting back on shorts.”

The euro will head back towards $1.25 as conditions deteriorate further, but is unlikely to fall below $1.20, Woolfolk said.

Thinking like the Fed

At the same time, traders were also gauging whether the payrolls data would be interpreted by the Federal Reserve as a possible reason to hold off on further quantitative easing this year and keep benchmark interest rates low for another three years.

“This is the kind of data that will challenge the Fed’s wisdom of putting a late 2014 date on prospective tightening, since any future changes to this date will be regarded as extremely market sensitive,” said Alan Ruskin, global head of G-10 foreign-exchange strategy at Deutsche Bank. “The data play strongly against QE3, although the Fed will surely keep it in the wings” as it continues its current policies.

“Considering that many investors had expected the Fed to increase asset purchases next month, the sharp rally in the U.S. dollar following the jobs number reflects a rush to adjust expectations and positioning,” said Kathy. Lien, director of currency research for GFT.

Others note the Fed is still concerned about the moribund housing market, which could derive support from the more central-bank purchases of mortgage-related debt if it lowers borrowing costs.

“We do not see this report as a game-changer for the Fed as we suspect that further evidence that this performance is being sustained will be required for the Fed to be assured of a transition to a self-sustaining recovery,” Millan Mulraine, senior macro strategist at TD Securities, wrote in emailed comments.

For the week, the euro remains down 0.6% against the dollar.

The dollar index has advanced 0.1% from last Friday.

Japan, U.K., Australia

Among other major currencies, the Japanese yen weakened much more, after being under pressure since Asian hours. Finance Minister Jun Azumi said Friday trade in the currency appeared to be “one-sided” and could prompt “decisive steps.” See report on Azumi’s latest intervention warning.

Japan last intervened in the forex market in October when its currency was last near current levels, selling yen to push the unit lower, as the strong currency has hurt the nation’s important export sector. Japanese officials have warned recently of fresh moves to push down the yen but have yet to act.

“The Bank of Japan and the Ministry of Finance will be rejoicing because the Japanese are the single biggest beneficiaries of today’s strong jobs number,” GFT’s Lien said. “If nonfarm payrolls were abysmally weak, dollar-yen would have probably broken below ¥76, forcing the MoF to intervene in the yen but now, the pressure to intervene has been instantly lifted.”

The dollar
USDJPY, +1.01%
traded at ¥76.62, up from ¥76.18 late Thursday. The move erased most of the dollar’s weekly drop to 0.1% from last Friday.

After being supported earlier by positive U.K. economic data, the British pound
GBPUSD, -0.1430%
lately turned up to $1.5817, compared to $1.5799.

Sterling gained 0.5% on the week, and is up 1.7% already this year even though many expect the Bank of England next week to expand its own easing policies.

The Australian dollar
AUDUSD, -0.0938%
sometimes seen as a gauge of investors’ appetite for riskier assets, turned up to $1.0777, from $1.0708 Thursday.

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